India’s fossil fuel operators will face challenges from renewable energy as the country plans to augment the sector to 175 GW in the next seven years from current 37 GW, Moody’s Investors Service today said. “The rising share of renewables in India’s generation mix – as the country grows substantially its proportion of renewable energy over the next 5-7 years creates challenges for conventional power generators,” Moody’s said in its report ‘Power Sector – India: Growth in Renewable Energy Capacity Will Challenge Fossil Fuel Operators.’ Moody’s expects India to register a power surplus over that period, thereby pressuring the utilisation rates of thermal generators.
“At the same time, implementation of the aggressive renewable energy capacities – which are planned to grow to 175 GW by 2022 compared to the current 37 GW – will be challenging, given counter party risk issues and the need for stable policy initiatives to support long term investments,” Moody’s said. “The most pronounced impact of a rising share of renewables in India’s energy mix will be on unregulated power companies,” said Abhishek Tyagi, a Moody’s Vice President and Senior Analyst. These companies are directly exposed to the market impact of environmental regulations, such as the clean energy tax, and do not receive the benefit of cost recovery from rate payers, added Tyagi.
He pointed out that the credit implications for individual Indian power generators will depend on their current and future generation mix, and how they adapt to the evolving policy environment. Regulated utilities like NTPC Ltd and Tata Power , whose power output is dominated by conventional sources, benefit from contracted and availability-based revenues, but their business risk will increase over the long term. “Implementing India’s aggressive renewable energy targets will be demanding,” said Terry Fanous, Moody’s Managing Director for Project and Infrastructure Finance ratings in Asia Pacific. Fanous said in addition to managing project construction and counter party risk issues, expansion of renewable energy financing requires a stable and predictable policy framework that supports long-term investment. India has taken steps to support investment in renewable energy, and further traction in policy reform is key for the sector’s ongoing development.
“Domestic banks will continue to provide significant funding for renewable energy projects, but greater funding diversity is needed,” Fanous said, adding attracting institutional debt will clearly support development of India’s renewable energy sector.